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Are You More Than A Little Overstretched?

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Are you more than a little overstretched?

Magnus Grimond and Rebecca O’Connor offer a financial checklist for those living on the edge

(Taken from: The Times - 03 June 2006)

TALK of rising interest rates ought to be setting off alarm bells across the UK right now. For while most of us enjoy greater financial security than ever before, a growing number are being stretched to breaking point.

The signs are increasingly obvious. Barclaycard, our biggest credit card group, gave warning last month that its customers are defaulting on £1 in every £5 they borrow. Meanwhile, personal bankruptcies have soared by 73 per cent in 12 months.

This comes as record numbers of us are in employment, interest rates are low and inflation is off most people’s agenda. So if our finances are being stretched while the good times roll, what might they look like if we were struck by a real calamity? We suggest how you can prepare for the worst with a Times Money stress test for your personal balance sheet.

What if interest rates jump by two percentage points?

This is one of the biggest immediate threats if inflation were to rise. If you had a £100,000 repayment mortgage at 4.5 per cent, you would have to find an extra 21 per cent a month, or £119, to cover the jump.

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser (IFA), says that drawing up a budget should tell you whether you are living beyond your means.

Ray Boulger, of John Charcol, the mortgage adviser, adds: “If your budget can’t cover the higher rates, the most important thing is to protect your credit status, which determines your ability to obtain credit on the best terms.”

If the worst comes to the worst, he suggests switching to an interest-only flexible mortgage, which would cut the monthly cost from £675 to £542. You could then overpay or underpay without compromising your credit record.

[snip]

What if house prices crash by 40 per cent?

Few economists expect a crash, but the combination of a falling dollar and rising oil prices could force American interest rates higher, triggering a global recession and undermining confidence in the housing market. Greg Fuzesi, of Nationwide, says: “The chance that house prices will be lower in two years’ time is less than 10 per cent.”

Should prices fall, the biggest risk is negative equity, when mortgage debt is greater than the value of a property. But Bernard Clarke, of the Council of Mortgage Lenders, says that this is only a problem if you need to move.

“If you can afford the repayments, just sit tight until prices recover,” he says. “Otherwise, you need to have a discussion with your lender as soon as possible. Banks will do all they can to help people to stay in their homes.”

[snip]

Full article available at: http://business.timesonline.co.uk/article/...2206820,00.html

The warning shots are coming in thick and fast now! There's still a lot of positive spin on what could potentially be a catastrophe for many people, but at least articles such as these are becoming more regular now ... let's just hope Joe Public pay attention! :unsure:

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There's somethin' wrong with the world today

I don't know what it is

Something's wrong with our IRs

We're seeing things in a different way

And Gordon knows it ain't His

It sure ain't no surprise...

We're livin' on the edge

We're livin' on the edge

We're livin' on the edge

We're livin' on the edge

There's somethin' wrong with the world today

The light bulb's gettin' dim

There's meltdown in our skies.

If you can judge an immigrant

By the color of his skin

You're a better man that I

We're livin' on the edge

You can't help yourself from fallin'

Livin' on the edge

You can't help yourself at all

Livin' on the edge

You can't stop yourself from fallin'

Livin' on the edge

Tell me what you think about your sit-u-a-tion

Complication - aggravation

Is getting to you

If fiona bruce tells you that the sky is fallin'

Even if it wasn't would you still come crawlin'

Back again?

I bet you would my friend

Again & again & again & again & again

We're livin' on the edge

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It's like hearing car-owners talking about the hell of parking. I don't feel smug I am just aware that what they're talking about has nothing to do with me at all. It's a whole area of anxieties about which I know nothing and which affects me not one jot.

Although of course interest rates do affect how much I get on savings and that isn't much at the moment. <_<

edit:

a. Their phrasing occasionally lets slip that they know what's coming:

"Banks will do all they can to help people to stay in their homes."

b. Is this true? Is it better for the banks to have their debt slaves keep slaving or to take possession? Hmm. What would I do if I were a bank? Of course if I were a bank I wouldn't be able to live with myself and I'd do us all a favour and chuck myself under a bus, but besides that... Yes, keep them slaving to pay me that money 92% of which wasn't mine to start with. So I suppose they will do what they can to 'help people stay in their homes'. Evill.

Edited by North London Rent Girl

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Guest Bart of Darkness
Like they say, 76.8% of statistics are made up.

Absolutely. 42% of all adults already know this.

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The warning shots are coming in thick and fast now! There's still a lot of positive spin on what could potentially be a catastrophe for many people, but at least articles such as these are becoming more regular now ... let's just hope Joe Public pay attention! :unsure:

When talking about the equities correction, it suggests diversifying into bonds or PROPERTY! Frying pan, fire alert... :lol:

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Are you more than a little overstretched?

Magnus Grimond and Rebecca O’Connor offer a financial checklist for those living on the edge

(Taken from: The Times - 03 June 2006)

TALK of rising interest rates ought to be setting off alarm bells across the UK right now. For while most of us enjoy greater financial security than ever before, a growing number are being stretched to breaking point.

The signs are increasingly obvious. Barclaycard, our biggest credit card group, gave warning last month that its customers are defaulting on £1 in every £5 they borrow. Meanwhile, personal bankruptcies have soared by 73 per cent in 12 months.

That blessed lap dancer and her ilk will see this figure continue to rise. Wonder how long until Barclaycard decide that a 20% default rate needs addressing by tightening credit rules ! Might be fun ?

This comes as record numbers of us are in employment, interest rates are low and inflation is off most people’s agenda. So if our finances are being stretched while the good times roll, what might they look like if we were struck by a real calamity? We suggest how you can prepare for the worst with a Times Money stress test for your personal balance sheet.

Agree. The economy has been incredibly resistant to some pretty major shocks. Yet we're approaching the 18 year cycle in a state of denial. Wonder if our luck will continue ?

What if interest rates jump by two percentage points?

This is one of the biggest immediate threats if inflation were to rise. If you had a £100,000 repayment mortgage at 4.5 per cent, you would have to find an extra 21 per cent a month, or £119, to cover the jump.

2ppt increase seems excessive. A 1ppt increase would increase bills by 20%. Along with tighter credit this could make things very difficult ?

Mark Dampier, of Hargreaves Lansdown, the independent financial adviser (IFA), says that drawing up a budget should tell you whether you are living beyond your means.

Ray Boulger, of John Charcol, the mortgage adviser, adds: “If your budget can’t cover the higher rates, the most important thing is to protect your credit status, which determines your ability to obtain credit on the best terms.”

If the worst comes to the worst, he suggests switching to an interest-only flexible mortgage, which would cut the monthly cost from £675 to £542. You could then overpay or underpay without compromising your credit record.

[snip]

What if house prices crash by 40 per cent?

Few economists expect a crash, but the combination of a falling dollar and rising oil prices could force American interest rates higher, triggering a global recession and undermining confidence in the housing market. Greg Fuzesi, of Nationwide, says: “The chance that house prices will be lower in two years’ time is less than 10 per cent.”

Although an STR I'm not banking on a fall of 10% so this may be right. What I'm banking on is a stagnant market. A rise of 1-2% per year would soon put an end to the flipping we're seeing... it would make those who see property as a quick money making scheme to realise that after buying and selling costs.. its dammed hard to make money from property. This alone would send shudders through the market.

Should prices fall, the biggest risk is negative equity, when mortgage debt is greater than the value of a property. But Bernard Clarke, of the Council of Mortgage Lenders, says that this is only a problem if you need to move.

“If you can afford the repayments, just sit tight until prices recover,” he says. “Otherwise, you need to have a discussion with your lender as soon as possible. Banks will do all they can to help people to stay in their homes.”

You missed the part about everyone should have 6 months of salary up their back pocket. This is the tricky one. Most people can access money in a crisis by using credit cards. Not exactly the same but again if credit were squeezed then may prove interesting.

Edited by thefruits

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Greg Fuzesi, of Nationwide, says: “The chance that house prices will be lower in two years’ time is less than 10 per cent.”

How did he/they arrive at that figure, did they use a formula or is it just his/their opinion.

Whatever!!!, but the thing is that the average man on the street will treat this statement as gospel, i honestly think these people are bordering on breaking the law, it is blatant ramping of the property market as far as i am concerned.

There are so many laws, restrictions and rules when it comes to any other market, yet anyone can say anything they want about property. A trillion £ business and our leading authoritys on the subject are Phil and Krusty, God i could weep :blink:

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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